Timing and tough measures

The "tough measures" taken by the SAR government to cool the overheating property market have effectively slowed the rise of housing prices but also led to a dramatic fall in property transactions, which sometimes number just a handful per day. In response to calls for lifting the restrictions Financial Secretary John Tsang Chun-wah told the press on Wednesday that the "tough measures" are still necessary for now to prevent property prices from soaring irrationally again, and he hopes the Legislative Council (LegCo) would pass them as soon as possible, but they will be ended when the time is right.

It is now becoming more and more popular for governments to set preconditions for lifting market-control measures and none is more evident than the US Federal Reserve (Fed), which noted at its regular meeting in March that it would not end quantitative easing as long as inflation is 2.5 percent or higher, and the jobless rate above 6.5 percent. This is undoubtedly a plus in terms of transparency and offers the market a good barometer for making predictions. But what does it mean for Hong Kong's property market? When exactly is the right time to lift the anti-speculation curbs?

To answer the question one must consider the anti-speculation curbs are "extraordinary measures" in "extraordinary times" aimed at cooling the overheating market to prevent the asset bubble it creates from bursting and reducing the impact it has on people's well-being. That means the curbs will remain until the property market returns to normal, which of course concerns a number of factors. The first one is definitely market price, which raises the question: How high is reasonable? There is also the question of how much the price level should to be adjusted, and what if the fall is too steep, etc.

Another key factor is financial risk, which can issue from bad loans, negative assets and/or their impacts on property prices. Also to be considered is how soon the Fed will begin tightening money supply again and whether the influx of hot money will suddenly flow away. Then there is people's livelihood, which is directly linked to affordability and loan-repayment plans. Are we sure the target affordability level means people can buy properties and especially for youths who cannot even afford the first down payment?

Currently all signs indicate the time is not right to begin relaxing the restrictions, meaning the risk of an asset bubble burst is still high and the supply/demand ratio way off-kilter. Apparently now is not the best time to ease the "tough measures".

This is an excerpted translation of a Hong Kong Commercial Daily editorial published on Sept 19.

(HK Edition 09/20/2013 page9)